The property market is an integral part of the field of dilapidations and influences our thinking on many aspects of the subject.
The Bad Times
During a market downturn, market conditions dictated an oversupply of office space in some areas and a lack of demand in others. The result is much higher incentives and more flexible leases were being granted by landlords, which affects rental and capital values.
The days are gone where the typical commercial tenant will sign a 25-year full repairing lease. Tenants now want shorter leases on more flexible terms, which include the provision of break options. In difficult times, landlords will try to satisfy as many of these requirements as possible, while keeping a lookout on any long term effect on their investment.
In a downturn market, a shrewd tenant will look at their end of term options early. These options may include renewing their lease on more favourable terms.
Where a tenant intends to vacate, it is advisable to look carefully at their exit strategy early, assess the market conditions, and try and pre-empt the landlord’s options.
Landlords should also look at the dilapidations issues early. In a downturn market the last thing a landlord wants is a vacant property. Early discussions with a tenant are essential.
The Good Times
During a buoyant market businesses are generally expanding, which puts pressure on supply. Landlords are in a good position to command higher rents on favourable terms.
Landlords will be in a better position to carry out refurbishments or development and so a tenant would do well to look carefully at the market to assess the landlord’s potential options.